UCBH HOLDINGS INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003


[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-24947

UCBH Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware		94-3072450

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

711 Van Ness Avenue, San Francisco, California 94102

(Address of principal executive offices) (Zip Code)

(415) 928-0700

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of November 13, 2003, the Registrant had 45,032,024 shares of common stock outstanding.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II - OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT INDEX
Exhibit 31.1
Exhibit 31.2
Exhibit 32

UCBH HOLDINGS, INC.
TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION
	Item 1. Financial Statements		1-3
		Notes to Consolidated Financial Statements	4-11
	Item 2. Management’s Discussion and Analysis of Financial Condition and
		Results of Operations	11-27
	Item 3. Quantitative and Qualitative Disclosures about Market Risk		28
	Item 4. Controls and Procedures		28
PART II - OTHER INFORMATION
	Item 1. Legal Proceedings		28
	Item 2. Changes in Securities and Use of Proceeds		28
	Item 3. Defaults Upon Senior Securities		28
	Item 4. Submission of Matters to a Vote of Security Holders		28
	Item 5. Other Information		28
	Item 6. Exhibits and Reports on Form 8-K		29
SIGNATURES			30
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UCBH HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)


		At September 30,			At December 31,
		2003			2002

		(unaudited)
Assets
Cash and due from banks		$	67,705		$	58,954
Federal funds sold			2,200			—
Investment and mortgage-backed securities available for sale, at fair value			1,245,344			1,469,387
Investment and mortgage-backed securities, held to maturity (fair value $285,628 at September 30, 2003, and $114,582 at December 31, 2002)			284,753			111,994
Federal Home Loan Bank Stock and other equity securities			36,709			40,162
Loans			3,619,569			3,027,810
Allowance for loan losses			(58,111	)		(48,865	)

Net loans			3,561,458			2,978,945

Accrued interest receivable			22,558			22,641
Premises and equipment, net			83,488			81,697
Goodwill			87,779			46,052
Core deposit intangibles			11,560			10,734
Other assets			24,120			33,070

	Total assets	$	5,427,674		$	4,853,636

Liabilities
Deposits		$	4,531,831		$	4,006,813
Borrowings			319,648			353,374
Guaranteed preferred beneficial interests in junior subordinated debentures			136,000			136,000
Accrued interest payable			10,663			11,659
Other liabilities			31,884			63,423

	Total liabilities		5,030,026			4,571,269

Commitments and contingencies			—			—
Stockholders’ Equity
Preferred stock, $.01 par value, authorized 10,000,000 shares, none issued and outstanding			—			—
Common stock, $.01 par value, authorized 180,000,000 and 90,000,000 shares at September 30, 2003, and at December 31, 2002, respectively, shares issued and outstanding 44,995,490 at September 30, 2003, and 42,018,728 at December 31, 2002			450			210
Additional paid-in capital			206,459			124,440
Accumulated other comprehensive (loss) income			(368	)		9,053
Retained earnings-substantially restricted			191,107			148,664

	Total stockholders’ equity		397,648			282,367

	Total liabilities and stockholders’ equity	$	5,427,674		$	4,853,636

The accompanying notes are an integral part of these financial statements.

Page 1

UCBH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited: Dollars in Thousands, Except for Per Share Data)


				For the Three Months Ended				For the Nine months Ended
				September 30,				September 30,

				2003		2002		2003		2002

Interest income:
	Loans			$	49,854	$	38,669	$	139,833	$	114,942
	Funds sold and securities purchased under agreements to resell				43		25		62		87
	Investment and mortgage-backed securities				16,402		11,236		51,947		30,724

		Total interest income			66,299		49,930		191,842		145,753

Interest expense:
	Deposits				17,677		13,919		52,936		43,491
	Short-term borrowings				112		136		587		338
	Guaranteed preferred beneficial interests in junior subordinated debentures				1,959		949		5,958		2,688
	Long-term borrowings				3,479		3,405		10,359		10,083

		Total interest expense			23,227		18,409		69,840		56,600

		Net interest income			43,072		31,521		122,002		89,153
Provision for loan losses					2,820		2,742		6,644		6,516

		Net interest income after provision for loan losses			40,252		28,779		115,358		82,637

Noninterest income:
	Commercial banking fees				1,645		1,262		4,736		3,403
	Service charges on deposits				515		404		1,657		1,230
	Gain on sale of securities				3,050		395		7,866		2,439
	Gain on sale of loans				1,229		408		1,746		1,182
	Miscellaneous income				92		125		318		294

		Total noninterest income			6,531		2,594		16,323		8,548

Noninterest expense:
	Personnel				10,133		6,627		30,506		21,075
	Occupancy				1,747		1,488		4,273		4,206
	Data processing				1,453		813		3,659		2,433
	Furniture and equipment				1,012		527		2,548		1,766
	Professional fees and contracted services				1,198		1,077		4,305		4,684
	Deposit insurance				185		109		511		323
	Communication				285		176		757		495
	Core deposit intangible amortization				185		—		1,318		—
	One-time litigation settlement				—		6,750		—		6,750
	Miscellaneous expense				3,585		2,235		9,618		6,335

			Total noninterest expense		19,783		19,802		57,495		48,067

Income before taxes					27,000		11,571		74,186		43,118
Income tax expense					10,232		4,243		28,062		16,895

		Net income		$	16,768	$	7,328	$	46,124	$	26,223

Basic earnings per share				$	0.37	$	0.19	$	1.07	$	0.67
Diluted earnings per share				$	0.36	$	0.18	$	1.02	$	0.64
Dividends declared per share				$	0.03	$	0.03	$	0.09	$	0.08

The accompanying notes are an integral part of these financial statements.

Page 2

UCBH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited: Dollars in Thousands)


				For the Nine months Ended
				September 30,

				2003			2002

Operating activities:
	Net income			$	46,124		$	26,223
	Adjustments to reconcile net income to net cash provided by (used for) operating activities:
		Provision for loan losses			6,644			6,516
		Decrease in accrued interest receivable			1,137			167
		Amortization of purchase accounting adjustments			(3,003	)		—
		Amortization of core deposit intangible			1,317			—
		Depreciation and amortization of premises and equipment			4,116			1,839
		Decrease (increase) in other assets			11,246			(12,655	)
		(Decrease) increase in other liabilities			(19,037	)		16,199
		(Decrease) increase in accrued interest payable			(1,192	)		461
		Gain on sale of loans, securities and other assets			(9,612	)		(3,621	)
		Other, net			9,353			906

			Net cash provided by operating activities		47,093			36,035

Investing activities:
	Acquisition, net cash acquired				48,244			—
	Investments and mortgage-backed securities, available for sale:
		Principal payments and maturities			499,035			173,795
		Purchases			(802,502	)		(275,140	)
		Sales			663,985			160,784
		Called			98,932			23,334
	Investments and mortgage-backed securities, held to maturity:
		Principal payments and maturities			18,319			78
		Purchases			(185,470	)		(13,139	)
	Loans originated, net of principal collections				(649,740	)		(473,159	)
	Proceeds from the sale of loans				108,880			52,253
	Purchases of premises and other equipment				(5,996	)		(732	)

		Net cash used in investing activities			(206,313	)		(351,926	)

Financing activities:
	Net increase in demand deposits, NOW, money market and savings accounts				271,257			191,387
	Net (decrease) increase in time deposits				(69,562	)		92,122
	Net (decrease) increase in borrowings				(33,375	)		20,000
	Proceeds from issuance of common stock				5,232			2,850
	Payment of cash dividend on common stock				(3,381	)		(2,731	)
	Proceeds from issuance of guaranteed preferred beneficial interests in junior subordinated debentures				—			35,000

		Net cash provided by financing activities			170,171			338,628

Net increase in cash and cash equivalents					10,951			22,737
Cash and cash equivalents at beginning of period					58,954			32,606

Cash and cash equivalents at end of period				$	69,905		$	55,343

Supplemental disclosure of cash flow information:
		Cash paid during the period for interest		$	71,032		$	56,140
		Cash paid during the period for income taxes			32,480			17,090
Supplemental schedule of non-cash investing and financing activities:
		Loans securitized		$	194,178		$	242,554

The accompanying notes are an integral part of these financial statements.

Page 3

UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Summary of Significant Accounting and Reporting Policies

Organization

UCBH Holdings, Inc. (the “Company” or “UCBH”) is a bank holding company that conducts its business through its principal subsidiary, United Commercial Bank (the “Bank” or “UCB”), a California state-chartered commercial bank. The Bank offers a full range of commercial and consumer banking products through its retail branches and other banking offices in California.

Basis of Presentation

The Consolidated Balance Sheets as of September 30, 2003; the Consolidated Statements of Income for the three and nine months ended September 30, 2003, and 2002; and the Consolidated Statements of Cash Flows for the nine months ended September 30, 2003, and 2002, have been prepared by the Company and are not audited.

The unaudited financial statement information presented was prepared on the same basis as the audited financial statements for the year ended December 31, 2002. In the opinion of management, such unaudited financial statements reflect all adjustments necessary for a fair statement of the results of operations and balances for the interim periods presented. Such adjustments are of a normal recurring nature. The results of operations for the three and nine months ended September 30, 2003, are not necessarily indicative of the results to be expected for the full year.

Principles of Consolidation and Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The wholly-owned subsidiaries include special purpose trusts established for the purpose of issuing Guaranteed Preferred Beneficial Interests in the Company’s Junior Subordinated Debentures. These trusts are consolidated in the Company’s financial statements.

All significant intercompany balances and transactions have been eliminated in consolidation.

Recent Accounting Pronouncements

Accounting for Stock-Based Compensation. In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (“SFAS No. 148”), which provides guidance on alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting stock-based employee compensation. It also amends the disclosure provision of that statement to require prominent disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. Finally, this statement amends APB Opinion No. 28, “Interim Financial Reporting,” to require disclosure about those effects in interim financial information.

The Company elects to continue accounting for stock-based compensation in accordance with APB Opinion No. 25.

Certain Financial Instruments with Characteristics of Both Liabilities and Equities. In May 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liability and Equity” (“SFAS No. 150”). This statement requires that an issuer classify financial instruments that are within its scope as a liability. Many of those instruments were classified as equity under previous guidance.

Page 4

Most of the guidance in SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise effective at the beginning of the first interim period beginning after June 15, 2003. Certain provisions of SFAS No. 150 as they apply to mandatorily redeemable noncontrolling interests have been deferred. The deferral of these provisions is expected to remain in effect while these noncontrolling interests are addressed in later phases of FASB projects.

Excluding these deferred provisions, the adoption of the SFAS No. 150 did not have a material impact on our consolidated financial statements.

Consolidation of Variable Interest Entities. In January 2003, the FASB issued FASB Interpretation No. 46, (“FIN 46”) “Consolidation of Variable Interest Entities.” This interpretation applies immediately to variable interest entities (“VIE”) in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to VIE in which an enterprise holds a variable interest that is acquired before February 1, 2003. Previously issued accounting pronouncements require the consolidation of one entity in the financial statements of another if the second entity has a controlling interest in the first. In effect, FIN 46 applies broader criteria than just voting rights in determining whether controlling financial interest in one entity by another exists. Specifically, if by design the owners of the entity have not made an equity investment sufficient to absorb its expected losses and the owners lack any one of three essential characteristics of controlling financial interest, the entity is to be consolidated in the financial statements of its primary beneficiary. The three characteristics are the ability to make decisions about the entity’s activities, the obligation to absorb the expected losses of the entity, and the right to receive the expected residual returns of the entity.

A public entity need not apply the provisions of FIN 46 to an interest held in a VIE or potential VIE until the end of the first interim or annual period ending after December 15, 2003, if both of the following conditions apply:

1. The VIE was created before February 1, 2003

2. The public entity has not issued financial statements reporting that VIE in accordance with FIN 46, other than in the disclosures.

As of September 30, 2003, the Company does not have interests in unconsolidated VIE. The impact of FIN 46 is currently being evaluated by the accounting community. Under one potential interpretation of FIN 46, the trusts which have issued our trust preferred securities would no longer be consolidated. Conversely, SFAS No. 150 requires consolidation of these trust subsidiaries and the presentation of the related debt instruments as a liability. The accounting community is currently working to resolve this contradictory guidance. Our current presentation is in compliance with SFAS No. 150.

One potential impact of not including these trusts in our consolidated liabilities is that The Federal Reserve Bank may no longer allow the trust preferred securities to count towards the Tier I capital of the Company. Even in such event, the Company would continue to be well capitalized. The Bank’s Tier I capital would be unaffected, since all trust preferred securities have been issued at the holding company level.

The Federal Reserve has issued interim guidance allowing the inclusion of these instruments in Tier I capital regardless of the FIN 46 interpretation, although such a determination may change at a later date. The ultimate decision of the banking regulators is not known at this time. We do not expect the adoption of FIN 46 to have any significant impact on our financial condition or operating results.

Derivative Instruments and Hedging Activities. In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS No. 149”). The provisions of SFAS No. 149 that relate to SFAS No. 133 and No. 138 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, provisions of SFAS No. 149 which relate to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to both existing contracts and new contracts entered into after June 30, 2003. The changes in SFAS No. 149 improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. In particular, SFAS No. 149 (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in paragraph 6(b) of SFAS

Page 5

No. 133 and No. 138, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying to conform it to language used in FIN 45, and (4) amends certain other existing pronouncements. Those changes will result in more consistent reporting of contracts as either derivatives or hybrid instruments.

SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except as stated above and for hedging relationships designated after June 30, 2003. In addition, except as stated above, all provisions of SFAS No. 149 should be applied prospectively.

We do not believe that the provisions of this statement will have a material impact on our consolidated financial statements.

2. Business Combinations

On July 14, 2003, the Company announced the completion of its acquisition of privately-held First Continental Bank (“FCB”), a full-service commercial bank headquartered in Rosemead, California, with four branches serving the San Gabriel Valley in southern California. Under the terms of the agreement announced on April 3, 2003, FCB merged into the Company’s subsidiary, UCB, and the Company issued approximately 2.3 million shares of its common stock in exchange for all of the outstanding shares of common stock of FCB. The merger was effected under the charter and insurance of deposits of UCB, and UCB, as the surviving entity, will continue to operate as the wholly-owned subsidiary of the Company under the name “United Commercial Bank”.

The acquisition was effective July 11, 2003 and was accounted for using the purchase method of accounting in accordance with FASB SFAS No. 141, “Business Combinations” (“SFAS No. 141”). The results of FCB’s operations have been included in the consolidated financial statements since that date. The aggregate purchase price was approximately $70.0 million based on the value of the Company’s common stock. The valuation of common stock was based upon the per share closing prices on the Nasdaq of the Company’s common stock on the closing date of the acquisition.

In accordance with SFAS No. 141, the assets acquired and liabilities assumed were recorded by the Company at their fair values at the acquisition date. The total acquisition cost (including direct transaction costs) exceeded the fair value of the new assets acquired by $43.8 million. This amount was recognized as intangible assets, consisting of goodwill of $41.6 million and a core deposit intangible of $2.2 million.

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill will not be expensed over a fixed period of time, but will be tested for impairment on a regular basis. The $41.6 million goodwill was assigned to the consumer segment in the amount of $13.2 million and the commercial segment in the amount of $28.4 million. None of the goodwill is expected to be deductible for income tax purposes. Identifiable intangible assets, namely core deposit intangibles of $2.2 million, are amortized over their estimated period of benefit which is approximately seven years. Amortization expense for the core deposit intangibles was $158,000 for the period from the acquisition date through September 30, 2003, representing the accumulated amortization at that date.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (dollars in thousands):


Cash and cash equivalents		$	51,770
Securities			56,854
Loans, net			243,015
Goodwill			41,602
Core deposit intangibles			2,225
Other assets			4,460

	Total assets acquired	$	399,926

Deposits			325,975
Other liabilities			428

	Total liabilities assumed	$	326,403

	Net assets acquired	$	73,523

Page 6

At the date of the FCB acquisition, the Company’s management determined the estimated fair values of assets acquired and liabilities assumed. The fair value determination of core deposit intangibles amounted to $2.2 million and was based upon independent appraiser valuation. The professional service fees with regard to the acquisition were capitalized and reflected as paid.

Unaudited pro forma consolidated results of operations for the nine months ended September 30, 2003 and 2002 as though FCB had been acquired as of January 1, 2002 follow (dollars in thousands):


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,

	2003		2002		2003		2002

Net interest income	$	43,403	$	34,031	$	127,831	$	95,825
Net income	$	16,800	$	8,235	$	47,269	$	28,225
Basic earnings per share	$	0.37	$	0.20	$	1.10	$	0.68
Diluted earnings per share	$	0.36	$	0.19	$	1.05	$	0.65

3. Earnings Per Share

The following are the basic and diluted earnings per share for the three and nine months ended September 30, 2003, and 2002:


		Three Months Ended September 30, 2003						Three Months Ended September 30, 2002 ⁽¹⁾

		Income		Shares		Per Share		Income		Shares		Per Share
		(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount

		(Dollars in Thousands, Except Per Share Amounts)
Basic:
	Net income	$	16,768		44,896,592	$	0.37	$	7,328		39,300,460	$	0.19
	Dilutive potential common shares		—		2,171,994				—		1,860,380

Diluted:
	Net income and assumed conversion	$	16,768		47,068,586	$	0.36	$	7,328		41,160,840	$	0.18


		Nine months Ended September 30, 2003						Nine months Ended September 30, 2002 ⁽¹⁾

		Income		Shares		Per Share		Income		Shares		Per Share
		(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount

		(Dollars in Thousands, Except Per Share Amounts)
Basic:
	Net income	$	46,124		43,104,602	$	1.07	$	26,223		39,135,874	$	0.67
	Dilutive potential common shares		—		2,079,712				—		1,826,894

Diluted:
	Net income and assumed conversion	$	46,124		45,184,314	$	1.02	$	26,223		40,962,768	$	0.64

⁽¹⁾ Effective April 8, 2003, the Company completed a two-for-one stock split. Accordingly, the financial statements for the three and nine months ended September 30, 2002 presented have been restated to reflect the effect of the stock split.

4. Comprehensive Income

SFAS No. 130, “Reporting Comprehensive Income,” establishes presentation and disclosure requirements for comprehensive income. For the Company, comprehensive income consists of net income and the change in unrealized gains and losses on available for sale securities. For the three months ended September 30, 2003, total comprehensive income was $9.0 million, a decrease of $4.6 million compared to the three months ended September 30, 2002. Net income for the three months ended September 30, 2003, was $16.8 million, and unrealized gains (losses) on available for sale securities decreased by $7.8 million. For the corresponding period of 2002, net income was $7.3 million, and unrealized gains on available for sale securities increased by $6.3 million.

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For the nine months ended September 30, 2003, total comprehensive income was $36.7 million, a decrease of $2.0 million compared to the nine months ended September 30, 2002. Net income for the nine months ended September 30, 2003, was $46.1 million, and unrealized gains (losses) on available for sale securities decreased by $9.4 million. For the corresponding period of 2002, net income was $26.2 million, and unrealized losses on available for sale securities decreased by $12.5 million.

5. Goodwill and Core Deposit Intangibles

On October 28, 2002, the Company acquired all of the outstanding shares of Bank of Canton of California, a California banking corporation (“BCC”). On December 13, 2002, the Company acquired certain assets and assumed certain liabilities of a branch of Broadway National Bank in Brooklyn, New York. On July 11, 2003, the Company acquired all of the outstanding shares of First Continental Bank, a California banking corporation (“FCB”). The acquisitions were accounted for using the purchase method of accounting in accordance with SFAS No. 147 “Acquisition of Certain Financial Institutions, an amendment to FAS No. 72, FAS No. 144, and FIN No. 9” (“SFAS No. 147”), which states that business combinations, other than mutual enterprises of financial institutions, should be accounted for under SFAS No. 141 “Business Combinations” (“SFAS No. 141”) and SFAS No. 142 “Goodwill and Intangible Assets” (“SFAS No. 142”).

In accordance with SFAS No. 141, the assets acquired and liabilities assumed were recorded by the Company at their fair values at the acquisition date. The resulting aggregate goodwill of $87.8 million and core deposit intangibles of $11.6 million are recorded on the balance sheet at September 30, 2003.

In accordance with SFAS No. 142, goodwill will not be expensed over a fixed period of time, but will be tested for impairment on a regular basis. None of the goodwill is expected to be deductible for income tax purposes. Core deposit intangibles of $11.6 million, are amortized over their estimated period of benefit which is approximately seven years. At September 30, 2003, the gross carrying amount for core deposit intangibles was $13.1 million and the associated accumulated amortization was $1.5 million.

In accordance with SFAS No. 142, intangible assets, including goodwill, will be reviewed annually to determine if circumstances related to their valuation have been materially affected. In the event that there is impairment, meaning that the current market values are determined to be less than the current book values, a charge against current earnings will be recorded. No such impairment existed at September 30, 2003, or at December 31, 2002.

6. Segment Information

The Company defines its reportable segments to reflect the Company’s method of internal reporting, which disaggregates its business into two reportable segments: Commercial Banking and Consumer Banking. These segments serve businesses and consumers, primarily in the state of California. Historically, our customer base has been primarily the ethnic Chinese communities located mainly in the San Francisco Bay Area, Sacramento/Stockton and Greater Los Angeles.

The financial results of the Company’s operating segments are presented on an accrual basis. There are no significant differences between the accounting policies of the segments and the Company’s consolidated financial statements. The Company evaluates the performance of its segments and allocates resources to them based on interest income, interest expense and net interest income. There are no material intersegment revenues.

Page 8

The following is segment information of the Company for the three and nine months ended September 30, 2003, and 2002:


		Commercial		Consumer		Total

		(Dollars in Thousands)
For the Three Months Ended September 30, 2003:
	Net interest income (before provision for loan losses)	$	30,741	$	12,331	$	43,072
	Segment net income		15,408		1,360		16,768
	Segment total assets		3,193,945		2,233,729		5,427,674
September 30, 2002:
	Net interest income (before provision for loan losses)	$	21,906	$	9,615	$	31,521
	Segment net income		5,297		2,031		7,328
	Segment total assets		2,185,210		1,140,855		3,326,065
For the Nine months Ended September 30, 2003:
	Net interest income (before provision for loan losses)	$	82,101	$	39,901	$	122,002
	Segment net income		36,675		9,449		46,124
	Segment total assets		3,193,545		2,233,729		5,427,674
September 30, 2002:
	Net interest income (before provision for loan losses)	$	58,423	$	30,730	$	89,153
	Segment net income		18,003		8,220		26,223
	Segment total assets		2,185,210		1,140,855		3,326,065

The $87.8 million goodwill was assigned to the consumer segment in the amount of $40.9 million and the commercial segment in the amount of $46.9 million for the three and nine month periods ending September 30, 2003.

7. Stock Option Plans

In May 1998, the Company adopted a Stock Option Plan (“Plan”) that provides for the granting of stock options to eligible officers, employees and directors of the Company and the Bank. The Plan was amended in April 1999 and April 2001 to increase the number of shares reserved for issuance pursuant to the Plan from 2,613,332 shares to 7,466,664 shares on a post-split basis. The Plan was amended in April 2003 to increase the number of shares reserved for issuance pursuant to the Plan from 7,466,664 shares to 9,567,600 shares, on a post-split basis.

In October 1995, the FASB issued SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). This statement establishes a new fair value based accounting method for stock-based compensation for plans and encourages, but does not require, employers to adopt the new method in place of the provisions of Accounting Principles Board Release No. 25 (“APB No. 25”). Companies may continue to apply the accounting provisions of APB No. 25 in determining net income. However, they must apply the disclosure requirements of SFAS No. 123 for all grants issued after 1994. In December 2002, the FASB issued SFAS No. 148 “Accounting for Stock-Based Compensations – Transition and Disclosure”, which provides guidance on alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provision of that statement to require prominent disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. Finally, this statement amends APB Opinion No. 28, “Interim Financial Reporting,” to require disclosure about those effects on interim financial information.

The Company elected to apply the provisions of APB No. 25 in accounting for the employee stock plan described above. Accordingly, no compensation cost has been recognized for stock options granted under the Plan.

Page 9

If the computed fair values of the stock awards had been amortized to expense over the vesting period of the awards, pro forma amounts would have been as shown in the following table. The impact of outstanding nonvested stock options has been excluded from the pro forma calculation.


			For the Three Months Ended						For the Nine months Ended
			September 30,						September 30,

			2003			2002			2003			2002

Net income:
	As reported		$	16,768		$	7,328		$	46,124		$	26,223
Deduct:
	Total stock-based employee compensation expense determined under fair value based method of all awards, net of related tax effects			(1,154	)		(993	)		(3,245	)		(2,910	)

	Pro forma net income		$	15,614		$	6,335		$	42,879		$	23,313

Earnings per share:
	Basic
		As reported	$	0.37		$	0.19		$	1.07		$	0.67
		Pro forma	$	0.35		$	0.16		$	0.99		$	0.60
Earnings per share:
	Diluted
		As reported	$	0.36		$	0.18		$	1.02		$	0.64
		Pro forma	$	0.33		$	0.15		$	0.95		$	0.57

These calculations require the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company’s stock option awards. These models also require subjective assumptions, including future stock price volatility, dividend yield, and expected time to exercise, which greatly affect the calculated values. The following weighted average assumptions were used in the Black-Scholes option pricing model for options granted during the nine months ended September 30, 2003, and 2002:


	For the Three Months Ended						For the Nine months Ended
	September 30,						September 30,

	2003			2002			2003			2002

Dividend yield		0.50	%		0.40	%		0.57	%		0.40	%
Volatility		22.25	%		30.45	%		21.01	%		30.45	%
Risk-free interest rate		3.40	%		3.90	%		3.16	%		3.90	%
Expected lives (years)		7.5			6.5			7.5			6.5

8. Guarantees

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness to Others” (“FIN 45”), which requires us to disclose information about obligations under certain guarantee arrangements. FIN 45 defines a guarantee as a contract that contingently requires us to pay a guaranteed party based on:

1. Changes in the underlying asset, liability or equity security of the guaranteed party or

2. A third party’s failure to perform under an obligating guarantee (performance guarantee).

We consider the following off-balance sheet lending arrangements to be guarantees under FIN 45:

Financial Standby Letters of Credit and Financial Guarantees are conditional lending commitments issued by us to guarantee the performance of a customer to a third party in borrowing arrangements. At September 30, 2003, the maximum undiscounted future payments that could be required to be made were $18.0 million. All of these arrangements mature within one year. We generally have recourse to recover from the customer any amounts paid under these guarantees.

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Premiums that are received for the referral of SBA loans may be refundable in the event of delinquency or early payoff of the underlying loans. At September 30, 2003, the maximum undiscounted future payments that could be required to be made totaled $262,000 and the maximum guarantee period was nine months.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Form 10-Q may include projections or other forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding future events or the future financial performance of the Company or the Company’s wholly-owned subsidiary, the Bank. Such forward-looking statements include without limitation, statements containing the words “confident that,” “believes,” “plans,” “expects,” “anticipates,” “projects” and words of similar import and involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company or the Bank to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things: the ability of the Company and the Bank to integrate Bank of Canton of California and First Continental Bank with their current operations and to achieve the efficiencies anticipated; the ability of the Company and the Bank to assimilate a bank branch in New York and to meet the competitive challenges of a new market; general economic and business conditions in those areas in which the Company or the Bank operates; demographic changes; competition; fluctuations in market conditions, including interest rates; changes in business strategies; changes in governmental regulations; changes in credit quality; and other risks and uncertainties including those detailed in the documents the Company files from time to time with the Securities and Exchange Commission. Further description of the risks and uncertainties are included in detail in the Company’s most recent quarterly and annual reports, including the Annual Report on Form 10-K for the year ended December 31, 2002, as filed with the Securities and Exchange Commission.

The following discussion and analysis is intended to provide details of the results of operations of the Company for the three and nine months ended September 30, 2003, and 2002 and financial condition at September 30, 2003, and at December 31, 2002. The following discussion should be read in conjunction with the information set forth in the Company’s Consolidated Financial Statements and notes thereto and other financial data included.

CORPORATE DEVELOPMENT

On July 14, 2003, the Company announced the completion of its acquisition of privately-held First Continental Bank (“FCB”), a full-service commercial bank headquartered in Rosemead, California, with four branches serving the San Gabriel Valley in southern California. Under the terms of the agreement announced on April 3, 2003, FCB merged into the Company’s subsidiary, UCB, and the Company issued approximately 2.3 million shares of its common stock in exchange for all of the outstanding shares of common stock of FCB. As of the acquisition date of July 11, 2003, FCB had total assets of $356.7 million, loans of $243.1 million and deposits of $325.6 million.

CRITICAL ACCOUNTING POLICIES

A number of critical accounting policies are used in the preparation of the Consolidated Financial Statements, which this discussion accompanies.

The Use of Estimates. The preparation of the Consolidated Financial Statements in accordance with Generally Accepted Accounting Principles (“GAAP”) requires management to make certain estimates and assumptions which affect the amounts of reported assets and liabilities as well as contingent assets and liabilities as of the date of these financial statements. These estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period(s). The Company has established detailed policies and control procedures that are intended to ensure that valuation methods are well controlled and applied consistently from period to period.

Page 11

Allowance for Loan Losses. The allowance for loan losses covers the commercial and consumer loan portfolio. The allowance for loan losses is intended to adjust the value of the Company’s loan assets for probable credit losses inherent at the balance sheet date in accordance with GAAP. The methodology for calculating the allowance involves significant judgment. First and foremost, it involves early detection of credits that are deteriorating. Second, it involves management’s judgment to derive loss factors.

The Company uses a risk grading system to determine the credit quality of its loans. Loans are reviewed for information affecting the obligor’s ability to fulfill its obligations. In assessing the risk grading of a particular loan, the factors considered include the obligor’s debt capacity and financial flexibility, the level of earnings of the borrowers, the amount and sources of repayment, the level and nature of contingencies, management strength, the quality of the collateral, and the industry in which the borrower operates. These factors are based on an evaluation of historical information as well as subjective assessment and interpretation. Emphasizing one factor over another or considering additional factors that may be relevant in determining the risk grading of a particular loan, but which are not currently an explicit part of the Company’s methodology, could affect the risk grade assigned to that loan.

Management also applies judgment to derive loss factors associated with each credit facility. These loss factors are considered by type of obligor and collateral. Whenever possible, the Company uses its own historical loss experience or independent verifiable data to estimate the loss factors. Many factors can affect management’s estimates of a loss factor. The application of different loss factors will change the amount of the allowance for credit losses determined to be appropriate by the Company. Given the process the Company follows in determining the risk grading of its loans, management believes the current risk gradings assigned to loans are appropriate.

Management’s judgment is also applied when considering uncertainties based on current macroeconomic conditions and other factors. For example, judgment as to the economic outlook in California will affect management’s assessment of potential losses based on exposure to that marketplace.

Notwithstanding the judgment required in assessing the allowance for loan losses, the Company believes its estimate for the allowance for loan losses was adequate.

Fair Value of Certain Assets. Certain assets of the Company are recorded at fair value. In some cases, the fair value used is an estimate. Included among these assets are securities that are classified as available for sale, goodwill and other intangible assets, other real estate owned and impaired loans. These estimates may change from period to period as they are impacted by changes in interest rates and other market conditions. Losses not anticipated or greater than anticipated could result if the Company were forced to sell one of these assets, subsequently discovering that its estimate of fair value had been too high. Gains not anticipated or greater than anticipated could result if the Company were to sell one of these assets, subsequently discovering that its estimate of fair value had been too low. The Company arrives at estimates of fair value as follows:

Available for Sale Securities: The fair values of most securities classified as available for sale are based on quoted market prices. If quoted market prices are not available, fair values are extrapolated from the quoted prices of similar instruments.

Goodwill and Other Intangible Assets: As discussed in Note 5 to the Consolidated Financial Statements, which this discussion accompanies, the Company must assess goodwill and other intangible assets each year for impairment. This assessment involves estimating cash flows for future periods. If the future cash flows are materially less than the estimates, the Company would be required to take a charge against earnings to write down the asset to the lower fair value.

Alternative Methods of Accounting. The accounting and reporting policies of the Company are in accordance with Generally Accepted Accounting Principles and conform to practices within the banking industry.

Page 12

When the Company adopted SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) in 1996, it elected to continue to use the method of accounting for stock options which did not recognize compensation expense at the time options were granted. As required by SFAS No. 123, pro forma amounts of compensation expense and the pro forma effect on net income and earnings per share are disclosed each year as if the Company had instead elected to use the accounting method that recognizes compensation expense. The pro forma compensation expense is computed using the Black-Scholes model for pricing options. Effective with this interim reporting, pro forma amounts of compensation expense and the pro forma effect on net income and earnings per share are disclosed in Note 7 on an interim basis as required by SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure”.

RESULTS OF OPERATIONS

General. The Company’s primary source of income is net interest income, which is the difference between interest income from interest-earning assets and interest paid on interest-bearing liabilities, such as deposits and other borrowings used to fund those assets. The Company’s net interest income is affected by changes in the volume of interest-earning assets and interest-bearing liabilities as well as by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds. The Company also generates noninterest income, including commercial banking fees, gain on sale of Small Business Administration (“SBA”) loans, the gain on sale of securities, and other transactional fees. The Company’s source of noninterest income has increasingly been derived from its commercial banking business. The Company’s noninterest expenses consist primarily of personnel, occupancy, professional fees, and other operating expenses. The Company’s results of operations are affected by its provision for loan losses and may also be significantly affected by other factors including general economic and competitive conditions, changes in market interest rates, governmental policies and the actions of regulatory agencies.

Net Income. The consolidated net income of the Company during the three months ended September 30, 2003, increased by $9.4 million, or 128.8%, to $16.8 million, compared to $7.3 million for the corresponding period of the preceding year. Included in net income for the three months ended September 30, 2002 was a one-time $6.75 million pretax charge for settlement of litigation and a one-time $350,000 tax benefit resulting from a California tax law change. The annualized return on average equity (“ROE”) and average assets (“ROA”) ratios for the three months ended September 30, 2003, were 17.96% and 1.25%, respectively. These amounts compare with annualized ROE and ROA ratios of 14.12% and 0.91%, respectively, for the three months ended September 30, 2002. The improvement in ROE and ROA results primarily from the absence of the one-time litigation settlement charge that occurred during the three months ended September 30, 2002, offset by a decreased net interest margin. The net interest margin was impacted by the assets and liabilities acquired in the October 28, 2002 acquisition of Bank of Canton of California (“BCC”), which had a significantly lower net interest margin than the Company. The lower net interest margin of BCC resulted from its high concentration in lower-yielding securities and lower concentration in lower-costing core deposits, when compared to the securities and core deposit concentrations of the Company. The Company plans to continue restructuring the acquired BCC assets by reducing the concentration of securities and increasing commercial loans. In addition, the Company will increase the core deposits and decrease the reliance of Certificates of Deposits as a funding source. The efficiency ratios were 39.88% for the three months ended September 30, 2003, compared with 58.04% for the corresponding period of the preceding year. Diluted earnings per common share on a post-split basis were $0.36 for the three months ended September 30, 2003, compared with $0.18 for the comparable period of the preceding year. The 2002 per share amount reflected after-tax effect of a one-time charge of $3.9 million, or $0.10 per diluted share. The increase in earnings per common share reflects both the organic loan growth within the Bank and the acquisitions of BCC and FCB.

The consolidated net income of the Company during the nine months ended September 30, 2003, increased by $19.9 million, or 75.9%, to $46.1 million, compared to $26.2 million for the corresponding period of the preceding year. Included in net income for the nine months ended September 30, 2002 is a one-time $6.75 million pretax charge for settlement of litigation and a one-time $350,000 tax benefit resulting from a California tax law change. The annualized ROE and ROA ratios for the nine months ended September 30, 2003, were 19.02% and 1.22%, respectively. These amounts compare with annualized ROE and ROA ratios of 18.06% and 1.13%, respectively, for the nine months ended September 30, 2002. The improvement in ROE and ROA results primarily from the absence

Page 13

of the one-time litigation settlement charge that occurred during the nine months ended September 30, 2002, offset by a decreased net interest margin which was affected by the assets and liabilities acquired in the October 28, 2002 acquisition of BCC. BCC had a significantly lower net interest margin than the Company. The Company plans to continue restructuring the acquired BCC assets by reducing the concentration of securities and increasing commercial loans. The efficiency ratios were 49.20% for the nine months ended September 30, 2003, compared with 58.04% for the corresponding period of the preceding year. Diluted earnings per common share on a post-split basis were $1.02 for the nine months ended September 30, 2003, compared with $0.64 for the comparable period of the preceding year. The after-tax effect of the one-time charge was $3.9 million, or $0.10 per diluted share for the nine months ended September 30, 2002. The increase in earnings per common share reflects both the organic loan growth within the Bank and the acquisitions of BCC and FCB.

Net Interest Income. Net interest income before provision for loan losses of $43.1 million for the three months ended September 30, 2003, represented a $11.6 million, or 36.6% increase over net interest income of $31.5 million for the three months ended September 30, 2002. The increase in net interest income reflects the asset growth resulting from the acquisitions of BCC and FCB and organic growth of the Company’s loan portfolio. The loan yield decreased from 6.45% for the three months ended September 30, 2002, to 5.66%, and the cost of deposits also decreased from 2.08% to 1.57% for the three months ended September 30, 2003. The decline in loan yield reflects repricing of adjustable-rate loans as a result of reductions in market interest rate indices, and the accelerated prepayment of the higher-yielding loans due to the lower market interest rates. The securities yield decreased from 5.72% for the three months ended September 30, 2002 to 4.14%. The decline in the securities yield reflects the runoff of higher-yielding securities and their replacement with lower-yielding securities due to the low market interest rate environment and the sale of higher-yielding long-term fixed-rate securities.

Net interest income before provision for loan losses of $122.0 million for the nine months ended September 30, 2003, represented a $32.8 million, or 36.8%, increase over net interest income of $89.2 million for the nine months ended September 30, 2002. The increase in net income reflects the acquisitions of BCC and FCB and the organic growth of the Company’s loan portfolio. The loan yield decreased from 6.59% for the nine months ended September 30, 2002, to 5.72%. The cost of deposits also decreased from 2.25% to 1.69% for the nine months ended September 30, 2003. The decline in loan yield reflects repricing of adjustable-rate loans as a result of reductions in market interest rate indices, and the accelerated prepayment of the higher-yielding loans due to the lower market interest rates. The securities yield decreased from 5.63% for the nine months ended September 30, 2002 to 4.44%. The decline in the securities yield reflects the prepayment of higher-yielding securities due to the low market interest rate environment and the sale of higher-yielding, long-term, fixed-rate securities.

Interest on earning assets increased $46.1 million to $191.8 million for the nine months ended September 30, 2003, up from $145.8 million for the nine months ended September 30, 2002. This increase resulted primarily from increases in average interest-earning assets in connection with the BCC and FCB acquisitions and organic commercial loan growth, partially offset by a decrease in interest rates. The Company had a $13.2 million increase in interest expense, to $69.8 million for the nine months ended September 30, 2003, up from $56.6 million for the nine months ended September 30, 2002. This reflects an increase of $1.48 billion in average interest-bearing deposits resulting from the addition of deposits from the BCC acquisition and organic deposit generation, partially offset by reductions in market interest rates on interest-bearing deposits.

Average outstanding loans increased to $3.26 billion for the nine months ended September 30, 2003, from $2.33 billion for the corresponding period of 2002, an increase of $934.6 million, or 40.2%, as a result of the Bank’s continued focus on commercial lending activities and the addition of loans from the acquisitions of BCC and FCB. New loan commitments of $1.45 billion for the nine months ended September 30, 2003, comprised of $1.28 billion in commercial loans and $162.7 million in consumer loans fuelled the growth in the loan portfolio. Loan growth during the nine months ended September 30, 2003, was offset by the internal securitization of multifamily loans as discussed below. Average commercial loans increased $906.0 million to $2.91 billion for the nine months ended September 30, 2003, up from $2.00 billion for the nine months ended September 30, 2002. Average consumer loans increased $28.6 million to $351.8 million for the nine months ended September 30, 2003, up from $323.3 million for the nine months ended September 30, 2002, due to the acceleration of principal prepayments resulting from the low market interest rate environment.

Page 14

Average securities increased to $1.56 billion for the nine months ended September 30, 2003, up from $727.1 million for the same period of 2002, an increase of $832.3 million, or 114.5%. This increase was primarily due to the addition of securities from the BCC acquisition, internal securitizations of loans of $242.6 million during the nine months ended September 30, 2002, and the internal securitization of $194.2 million of multifamily loans during the nine months ended September 30, 2003. Securities runoff which accelerated with the lower market interest rate environment was substantially replaced with new securities purchases. During the first nine months of 2003, the Company also sold securities with an aggregate principal balance of $656.1 million. Such securities generally carried the higher purchase premiums and had longer terms. Such securities were sold to protect the Company from both accelerating prepayments and from increases in market interest rates. As part of the Company’s restructuring strategy, securities that have high prepayment and extension risk were replaced with shorter-dated securities with less prepayment and extension risk.

Average interest-bearing deposits increased to $3.91 billion for the nine months ended September 30, 2003, up from $2.43 billion in the corresponding period of the prior year as a result of organic deposit generation and the addition of deposits from the BCC and FCB acquisitions. Average noninterest-bearing deposits increased to $281.3 million for the nine months ended September 30, 2003, up from $146.3 million for the corresponding period of the prior year. This increase of $135.1 million, or 92.3%, was a result of the Company’s ongoing focus on the generation of commercial and consumer demand deposit accounts and from the acquisitions of BCC and FCB.

Net Interest Margin. The net interest margin was 3.37% for the nine months ended September 30, 2003 compared to 3.88% for the nine months ended September 30, 2002. The net interest margin, calculated on a tax equivalent basis, was 3.44% for the nine months ended September 30, 2003, as compared to 3.94% for the corresponding period of 2002. Certain interest-earning assets of the Company qualify for state or federal tax exemptions or credits. The net interest margin, calculated on a tax equivalent basis, considers the tax benefit derived from these assets. The decrease in the net interest margin was primarily a result of the impact of the assets and liabilities acquired in the October 28, 2002 acquisition of BCC, which had a significantly lower net interest margin than the Company. The decrease in the net interest margin was partially offset by the continuing growth in commercial loans and in lower-costing core deposits.

Page 15

The following table presents condensed average balance sheet information for the Company, together with interest rates earned and paid on the various sources and uses of funds for each of the periods indicated:


				At
				September			For the Nine months Ended								For the Nine months Ended
				30, 2003			September 30, 2003								September 30, 2002

				(Dollars in Thousands)
										Interest								Interest
							Average			Income or		Average			Average			Income or		Average
				Yield/Cost			Balance			Expense		Yield/Cost			Balance			Expense		Yield/Cost

Interest-earning assets:
	Loans ⁽¹⁾				5.53	%	$	3,260,818		$	139,833		5.72	%	$	2,326,248		$	114,942		6.59	%
	Securities				4.20			1,559,367			51,947		4.44			727,075			30,724		5.63
	Other				0.90			12,624			62		0.65			6,919			87		1.67

Total interest-earning assets					5.12			4,832,809			191,842		5.29			3,060,242			145,753		6.35
Noninterest-earning assets					—			202,028			—		—			46,067			—		—

Total assets					4.90	%	$	5,034,837		$	191,842		5.08	%	$	3,106,309		$	145,753		6.26	%

Interest-bearing liabilities:
	Deposits:
			NOW, checking, and money market accounts		0.93	%	$	603,953		$	5,145		1.14	%	$	355,443		$	4,146		1.56	%
			Savings accounts		0.80			755,765			5,366		0.95			484,686			4,618		1.27
			Time deposits		2.04			2,545,895			42,424		2.22			1,590,471			34,727		2.91

	Total deposits				1.61			3,905,613			52,935		1.81			2,430,600			43,491		2.39
	Borrowings				4.55			326,933			10,946		4.46			259,553			10,421		5.35
		Guaranteed preferred beneficial interests in junior subordinated debentures			5.68			136,000			5,959		5.84			43,341			2,688		8.27

Total interest-bearing liabilities					1.93	%		4,368,546			69,840		2.13	%		2,733,494			56,600		2.76	%

Noninterest-bearing deposits								281,344								146,270
Other noninterest-bearing liabilities								61,549								32,971
Stockholders’ equity								323,398								193,574

Total liabilities and stockholders’ equity							$	5,034,837							$	3,106,309

Net interest income/net interest rate spread ^{(2) (4)}					3.19	%				$	122,002		3.16	%				$	89,153		3.59	%

Net interest-earning assets/net interest margin ^{(3) (4)}					3.40	%	$	464,263					3.37	%	$	326,748					3.88	%

Ratio of interest-earning assets to interest-bearing liabilities					1.12	X		1.11	x							1.12	x

⁽¹⁾ Nonaccrual loans are included in the table for computation purposes, but the foregone interest on such loans is excluded.

⁽²⁾ Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

⁽³⁾ Net interest margin represents net interest income divided by average interest-earning assets.

⁽⁴⁾ Calculated on a nontax equivalent basis.

Provision for Loan Losses. The provision for loan losses reflects management’s judgment of the current period cost associated with credit risk inherent in the Company’s loan portfolio. Specifically, the provision for loan losses represents the amount charged against current period earnings to achieve an allowance for loan losses that, in management’s judgment, is adequate to absorb losses inherent in the Company’s loan portfolio.

For the three months ended September 30, 2003, our provision for loan losses was $2.8 million, a decrease of $100,000 compared to a provision of $2.7 million for the corresponding period of 2002. For the nine months ended September 30, 2003, our provision for loan losses was $6.6 million, an increase of $100,000 compared to a provision of $6.5 million for the corresponding period of 2002.

Our overall loan portfolio grew from $2.44 billion at September 30, 2002, to $3.62 billion at September 30, 2003, an increase of $1.18 billion or 48.4%. Of this increase, $515.1 million was attributable to loans acquired from the BCC acquisition that had an associated allowance for loan losses of $8.9 million, and $247.0 million was attributable to loans acquired from the FCB acquisition that had an associated allowance for loan losses of $4.0 million. BCC’s allowance at the acquisition date of $8.9 million was increased by $1.2 million by the Company to reflect a loss from the sale of a problem loan acquired from BCC. The loan was identified during the due diligence process, and the loss was factored into the acquisition cost.

Page 16

Our provision for loan losses for the three and nine months ended September 30, 2003, resulted from the following factors:

• We continued to focus on commercial loan originations during 2003. Total commercial loan originations were $1.28 billion during the nine months ended September 30, 2003, compared with originations of $932.1 million for the corresponding quarter of 2002. The concentration of commercial lending was 88.8% of total loans compared to 89.1% in the corresponding period of 2002. Our allowance for loan loss methodology attributes higher loss factors to commercial loans, reflecting the higher inherent risk in that portfolio.

• Criticized loans, which are defined as those we classify as risk-graded Special Mention, Substandard, Doubtful, or Loss, were approximately 1.13% of total loans at September 30, 2003, compared with criticized loans of approximately 0.77% of total loans at September 30, 2002.

• Nonaccrual loans increased from $3.2 million at September 30, 2002, to $5.8 million at September 30, 2003. The increase reflects two construction loans on one project that were over 90 days past due.

• Net charge-offs of $1.4 million for the nine months ended September 30, 2003, decreased as compared to net charge-offs of $2.1 million for the corresponding period of 2002. The charge-offs in the nine months ended September 30, 2003 and 2002 related primarily to commercial business lending.

Noninterest Income. Noninterest income for the three months ended September 30, 2003, was $6.5 million compared to $2.6 million for the corresponding quarter of 2002, an increase of $3.9 million, or 151.8%, primarily as a result of an increase in commercial banking fees and gain from sale of loans and securities. Commercial banking fees increased 30.3% to $1.6 million for the three months ended September 30, 2003, as compared to $1.3 million for the corresponding period of 2002, a result of increased commercial banking activities, primarily trade finance business. Gain on sale of loans and securities increased by 432.9% to $4.3 million for the three months ended September 30, 2003, compared with $803,000 for the corresponding period of 2002. Gains from sale of SBA loans for the three months ended September 30, 2003 were $1.2 million, compared to $408,000 for the corresponding period in 2002. Gains recognized on sale of securities were $3.1 million for the three months ended September 30, 2003, in conjunction with the Company’s securities restructuring strategy further explained in the Financial Condition section. The Company anticipates that the securities restructuring program will continue in the fourth quarter of 2003.

Noninterest income for the nine months ended September 30, 2003, was $16.3 million compared to $8.5 million for the corresponding quarter of 2002, an increase of $7.8 million, or 91.0%, primarily as a result of an increase in commercial banking fees and gain from sale of SBA loans and securities. Commercial banking fees increased 39.2% to $4.7 million for the nine months ended September 30, 2003, as compared to $3.4 million for the corresponding period of 2002, a result of increased commercial banking activities, primarily trade finance business. Gain on sale of loans and securities increased by 165.5% to $9.6 million for the nine months ended September 30, 2003, compared with $3.6 million for the corresponding period of 2002, due to increased securities sales.

Noninterest Expense. Noninterest expense was $19.8 million for both the three months ended September 30, 2003, and 2002. Personnel expenses increased to $10.1 million for the three months ended September 30, 2003, up from $6.6 million for the corresponding period of 2002, an increase of $3.5 million, or 52.9%. This increase is primarily due to the additional staffing resulting from the BCC and FCB acquisitions and staffing required to support continued growth of the Bank’s commercial banking business. Occupancy expenses of $1.7 million are net of rental income of $1.6 million for the three months ended September 30, 2003. Occupancy expenses of $1.5 million are net of rental income of $251,000 for the corresponding period of 2002. The increased occupancy expenses resulting from the BCC and FCB acquisitions were offset by the increased rental income from the corporate office building acquired in the BCC acquisition. Professional fees and contracted services were $1.2 million for the three months ended September 30, 2003, compared with $1.1 million for the corresponding period of 2002. Included in noninterest expense is core deposit intangible amortization of $185,000 for the three months ended September 30, 2003. The core deposit intangible was recorded in connection with the acquisitions of BCC,

Page 17

the New York branch, and FCB. Miscellaneous expenses of $3.6 million for the three months ended September 30, 2003 increased $1.4 million, or 60.4%, compared with $2.2 million for the corresponding quarter of 2002. The increase primarily related to additional expenses resulting from the BCC and FCB acquisitions.

Noninterest expense of $57.5 million for the nine months ended September 30, 2003, increased $9.4 million, or 19.6%, compared with $48.1 million for the corresponding period of 2002. Personnel expenses increased to $30.5 million for the nine months ended September 30, 2003, up from $21.1 million for the corresponding period of 2002, an increase of $9.4 million, or 44.7%. This increase is primarily due to the additional staffing resulting from the BCC and FCB acquisitions and staffing required to support continued growth of the Bank’s commercial banking business. Occupancy expenses of $4.3 million are net of rental income of $4.7 million for the nine months ended September 30, 2003. Occupancy expenses of $4.2 million are net of rental income of $750,000 for the nine months ended September 30, 2002. The increase in rental income results primarily from rental income of the corporate office building acquired in the BCC acquisition. Included in noninterest expense is core deposit intangible amortization of $1.3 million for the nine months ended September 30, 2003. The core deposit intangible was recorded in conjunction with the acquisitions of BCC, the New York branch, and FCB. Miscellaneous expenses of $9.6 million for the nine months ended September 30, 2003 increased $3.3 million, or 51.8%, compared with $6.3 million for the corresponding period of 2002. The increase primarily related to additional expenses resulting from the BCC and FCB acquisitions.

Provision for Income Taxes. The provision for income taxes was $10.2 million and $4.2 million on the income before taxes of $27.0 million and $11.6 million for the three months ended September 30, 2003 and 2002, respectively. The effective tax rate for the quarter ended September 30, 2003, was 37.90%, compared with 36.67% for the quarter ended September 30, 2002.

The provision for income taxes was $28.1 million and $16.9 million on the income before taxes of $74.2 million and $43.1 million for the nine months ended September 30, 2003 and 2002, respectively. The effective tax rate for the nine months ended September 30, 2003, was 37.83%, compared with 39.18% for the period ended September 30, 2002. The lower effective tax rate reflects the realization of Enterprise Zone tax benefits from lending activities associated with the BCC acquisition and the increased municipal securities portfolio.

FINANCIAL CONDITION

The Company experienced continued asset and core deposit growth during the third quarter of 2003. Total assets at September 30, 2003, were $5.43 billion, an increase of $574.0 million, up from $4.85 billion at December 31, 2002. The growth resulted primarily from the FCB acquisition.

During the nine months ended September 30, 2003, total loans increased by $591.8 million, or 19.5%, to $3.62 billion, up from $3.03 billion at December 31, 2002. This growth resulted from the acquisitions of BCC and FCB and an organic increase in commercial loans resulting from the Bank’s continuing focus on originating such loans. This growth was partially offset by the internal securitization of $194.2 million of multifamily loans during the nine months ended September 30, 2003. Total commercial loans grew to $3.24 billion at September 30, 2003, up from $2.67 billion at December 31, 2002, as a result of new commercial loan commitments of $1.28 billion, offset by principal repayments and the internal securitization of multifamily loans. Consumer loans increased to $385.3 million at September 30, 2003, from $360.4 million at December 31, 2002, primarily due to new consumer loan commitments.

As a result of lower market interest rates, the Company experienced a higher level of new loan commitments for the nine months ended September 30, 2003. Total commitments of $1.45 billion were comprised of $1.28 billion of commercial loans and $162.7 million of consumer loans. Securities (including available for sale and held to maturity) totaled $1.53 billion at September 30, 2003, a decrease of $51.3 million, or 3.2%, from $1.58 billion at December 31, 2002. This was primarily the result of sales of $656.1 million and principal repayments and securities calls of $605.6 million, partially offset by purchases of $983.6 million and internal securitizations of $194.2 million.

Page 18

During the second quarter of 2003, the Company implemented a securities restructuring strategy intended to replace securities that have high prepayment and extension risk with securities that are shorter-dated and have less prepayment and extension risk. The Company also leveraged on the talents of its loan officers to increase loan production and accelerated the planned balance sheet restructuring announced at the time of the BCC acquisition to reduce the percentage of securities and increase the percentage of loans on the balance sheet. The securities restructuring strategy and increased loan production were intended to protect the Company from mark-to-market volatility in the securities portfolio and better position the Company for accelerated margin expansion in an upward market interest rate environment. The Company will continue to monitor changing market conditions and actively manage its securities restructuring strategy.

Total past due loans were 0.61% of total loans at September 30, 2003, compared with 0.88% at December 31, 2002. Nonperforming assets were $5.8 million, or 0.11%, of total assets at September 30, 2003, compared with nonperforming assets of $4.7 million, or 0.10%, of total assets at December 31, 2002. The allowance for loan losses was $58.1 million at September 30, 2003, an increase of $9.2 million from $48.9 million at December 31, 2002. The increase in the allowance for loan losses reflected the growth in the loan portfolio during the nine months ended September 30, 2003, the increased concentration in commercial loans, and the increase in Criticized loans and nonperforming loans. The increase was also due to the acquisitions of BCC and FCB and the reserves that came over from those acquisitions.

The following table shows the composition of the Bank’s loan portfolio by amount and percentage of gross loans in each major loan category at the dates indicated:


		At September 30, 2003						At December 31, 2002

		Amount			%			Amount			%

					(Dollars in Thousands)
Commercial:
	Secured by real estate-nonresidential	$	1,616,322			44.54	%	$	1,279,809			42.20	%
	Secured by real estate-multifamily		1,042,817			28.74			914,630			30.16
	Construction		296,922			8.18			216,218			7.13
	Commercial business		287,577			7.92			261,787			8.63

	Total commercial loans		3,243,638			89.38			2,672,444			88.12

Consumer:
	Residential mortgage (one to four family)		330,136			9.10			311,067			10.25
	Other		55,209			1.52			49,372			1.63

	Total consumer loans		385,345			10.62			360,439			11.88

Total gross loans			3,628,983			100.00	%		3,032,883			100.00	%

Net deferred loan origination fees			(9,414	)					(5,073	)

Loans			3,619,569						3,027,810
Allowance for loan losses			(58,111	)					(48,865	)

Net loans		$	3,561,458					$	2,978,945

The Company continues to emphasize production of commercial real estate and commercial business loans and to place reduced emphasis on the origination volume of residential mortgage (one to four family) loans. The Company originates substantially all of its loans for portfolio retention. The Company also originates and funds loans that qualify for guaranty issued by the SBA. The U.S. government guarantee on such loans is generally in the range of 75% to 85% of the loan amount. The residual portion of the loan, ranging from 15% to 25%, is not guaranteed by the U.S. government, and the Company bears the credit risk of such loans. The Company generally sells the guaranteed portion of each SBA loan at the time of loan origination. From time-to-time, the Company may sell a portion of the unguaranteed segment of the SBA loans. SBA regulations require that the originator retain a minimum of 5% of the total loan amount. The amount of the unsold guaranteed portion of SBA loans was insignificant as of September 30, 2003, and December 31, 2002.

Page 19

Construction loans, commercial business loans and SBA loans generally have monthly repricing terms. Commercial real estate loans generally reprice monthly or are intermediate fixed, meaning that the loans have interest rates that are fixed for a period, typically five years, and then generally reprice monthly or become due and payable. Multifamily loans are generally adjustable-rate and reprice semiannually. Residential mortgage (one to four family) loans may be adjustable-rate and reprice semiannually or annually, fixed rate for terms of 15 or 30 years, or have interest rates that are fixed for a period, typically five years, then generally repricing semiannually or annually.

As a result of the change of focus to commercial lending, adjustable-rate loans increased to $3.03 billion, an increase of $516.5 million, or 20.5%, from $2.51 billion at December 31, 2002. Adjustable-rate loans represent 83.4% of gross loans at September 30, 2003, compared with 82.8% of gross loans at December 31, 2002. Fixed-rate loans increased slightly by $80.6 million, or 15.4%, to $603.0 million, or 16.6% of gross loans at September 30, 2003, compared with $522.5 million, or 17.2% of the gross loans at December 31, 2002. At September 30, 2003, adjustable-rate loans included $405.0 million of intermediate fixed-rate loans compared with $205.6 million at December 31, 2002, an increase of $199.4 million, or 97.0%.

The following table reflects the Bank’s new loan commitments during the periods indicated:


			For the Nine months Ended
			September 30,

			2003		2002

			(Dollars in Thousands)
Commercial:
	Secured by real estate-nonresidential ⁽¹⁾		$	412,170	$	258,830
	Secured by real estate-multifamily ⁽¹⁾			434,687		369,068
	Construction			258,012		145,580
	Commercial business			179,312		158,592

		Total commercial loans		1,284,181		932,070

Consumer:
	Residential mortgage (one to four family) ⁽¹⁾			140,941		89,031
	Home equity and other			21,794		25,010

		Total consumer loans		162,735		114,041

	Total new commitments		$	1,446,916	$	1,046,111

⁽¹⁾ For nonresidential loans, substantially all commitments have been funded. For multifamily and residential mortgage (one to four family) loans, all commitments have been funded.

Internal Loan Securitizations. The Company manages its risk-based capital level through a variety of means, including internal loan securitizations. In such securitizations, the Company exchanges either multifamily or residential mortgage (one to four family) loans for FNMA securities. Residential mortgage (one to four family) loans are generally included in the 50% risk weight for risk-based capital purposes, whereas multifamily loans may fall either into the 50% or 100% risk weight depending on the specific criteria of each individual loan. FNMA securities are classified as a 20% risk weight.

These internal securitizations do not have a cash impact to the Company, since selected loans from the Company’s loan portfolio are exchanged for FNMA securities. Such securities are represented by exactly the same loans previously held in the Company’s loan portfolio. The FNMA securities are generally held as available for sale (“AFS”) securities in the Company’s investment and mortgage backed securities portfolio.

Through these securitization transactions, the Company also reduces its credit risk. In these securitizations, the Company fully transfers credit risk on the related loans to FNMA. The Company’s yield on the FNMA securities is lower than the average yield on the underlying loans. This difference is the guarantee fee that is retained by FNMA as compensation for relieving the Company of the credit risk on these loans. Since the Company retains all of the securities issued by FNMA in the securitization, no gain or loss is recognized on the exchange transaction. The Company continues to service the loans included in these securitizations.

Page 20

In addition, these securitization transactions improve the Company’s liquidity, since FNMA securities receive more favorable treatment as a collateral base for borrowings than do whole loans.

During the nine months ended September 30, 2003, the Company internally securitized $194.2 million of multifamily loans.

Risk Elements. Management generally places loans on nonaccrual status when they become 90 days past due, unless they are both well secured and in the process of collection. When a loan is placed on nonaccrual status, any interest previously accrued but not collected is reversed from income.

Following is the Bank’s risk elements table:


					At September 30,			At December 31,
					2003			2002

					(Dollars in Thousands)
Nonaccrual loans:
		Commercial
		Secured by real estate-nonresidential			$	—		$	—
		Secured by real estate-multifamily				—			—
		Construction				4,848			4,533
		Commercial business				951			68

			Total commercial			5,799			4,601

	Consumer
		Residential mortgage (one to four family)				—			—
		Other				—			53

			Total consumer			—			53

				Total nonaccrual loans		5,799			4,654

Other real estate owned (“OREO”)						—			—

Total nonperforming assets					$	5,799		$	4,654

Nonperforming assets to total assets						0.11	%		0.10	%
Nonaccrual loans to loans						0.16			0.15
Nonperforming assets to loans and OREO						0.16			0.15
Loans					$	3,619,569		$	3,027,810

Gross income not recognized on nonaccrual loans					$	140		$	211
Accruing loans contractually past due 90 days or more					$	2,012		$	4,302
Performing restructured loans not included above					$	9,120		$	—

Total nonperforming assets were $5.8 million at September 30, 2003, an increase of $1.1 million, from $4.7 million at December 31, 2002. The increase was attributable to two construction loans to the same borrower on the same property that were over 90 days past due. The Bank records OREO at the lower of carrying value or fair value less estimated disposal costs. Any write-down of OREO is charged to earnings. The Bank held no OREO at September 30, 2003, or December 31, 2002.

The $9.1 million performing restructured loan in the table above represents a performing commercial real estate loan. No interest rate concessions were made on this loan. The restructured classification is due to the Bank making interest rate concessions on a separate $965,000 loan to the same obligor on the same property during the quarter. The $965,000 loan is included in the nonaccrual construction loans balance in the table above. The obligor may make additional draws under this facility, but such draws would not have a material impact on the Company’s nonperforming assets.

Management cannot predict the extent to which economic conditions in the Bank’s market area may worsen or the full impact that such conditions may have on the Bank’s loan portfolio. Accordingly, there can be no assurance that other loans will not become 90 days or more past due, be placed on nonaccrual status, or become impaired or restructured loans or OREO in the future.

Page 21

Allowance for Loan Losses. The Company has established a formal process for establishing an adequate allowance for loan losses. This process results in an allowance that has two components: allocated and unallocated. To determine the allocated component, the Company arrives at estimates by analyzing certain individual loans (including impaired loans) and analyzing loans in groups. For the loans the Company analyzes individually, the Company may use third-party information, such as appraisals, to help supplement our internal analysis. For the loans the Company analyzes in groups, such as residential mortgage (one to four family) loans, the Company reviews delinquency trends, charge-off experience, the makeup of its loan portfolio, current economic conditions, regional trends in collateral values, as well as other factors.

The Company uses the unallocated portion of the allowance to compensate for the imprecise nature of estimating an adequate allowance for incurred loan losses, economic uncertainties, and other factors. The Company’s loan portfolio also undergoes an internal asset review, and portions are examined by government regulators. The Company incorporates the results of these examinations into its assessments.

The Company’s allowance for loan losses is increased by provisions for loan losses, which are charged against earnings, and is reduced by charge-offs, net of any recoveries. Loans are charged off when they are classified as a “loss.” For any loan which is deemed classified, the Company performs an impairment assessment and charges off the amount by which the recorded loan amount exceeds the value of the property securing the loan, unless the loan is both well secured and in the process of collection. The Company generally records recoveries of amounts that have been previously charged off only to the extent that cash is received.

While the Company uses all available evidence in determining whether the Company believes its allowance for loan losses is adequate, future additions to the allowance will be subject to the continuing evaluation of the inherent risks in its portfolio. The Company may need to make additional provisions for loan losses if the economy declines or asset quality deteriorates. Also, regulators review the allowance as part of their examinations. Although they can require the Company to adjust its allowance as a result of such examinations, they have not done so in any of the years presented. The Company believes, however, that the allowance for loan losses is adequate to provide for estimated losses inherent in its loan portfolio.

The Company considers the allowance for loan losses of $58.1 million adequate to cover losses inherent in its loan portfolio at September 30, 2003.

The following table sets forth information concerning the Bank’s allowance for loan losses for the dates indicated:


	For the Nine months Ended
	September 30,

	2003			2002

	(Dollars in Thousands)
Balance at beginning of period	$	48,865		$	34,550
Acquired allowance for loan losses		4,028			—
Provision for loan losses		6,644			6,516
Loans charged off		(2,661	)		(2,126	)
Recoveries		1,235			26

Balance at end of period	$	58,111		$	38,966

Allowance for loan losses to loans		1.61	%		1.60	%
Annualized net charge-offs to average loans		0.06	%		0.12	%

Page 22

Securities. The Company maintains an investment and mortgage-backed securities portfolio (“portfolio”) to provide both liquidity and enhance the income of the organization. The portfolio is comprised of two segments: Available For Sale (“AFS”) and Held to Maturity (“HTM”). The Company does not maintain a trading portfolio. The Company carries the AFS portfolio at fair value, with unrealized changes in the fair value of the securities reflected as Accumulated Other Comprehensive Income. At the end of each month, the Company adjusts the carrying value of its AFS portfolio to reflect the current fair value of each security. The HTM portfolio is carried at amortized cost. At the time a security is purchased, the Company classifies it either as AFS or HTM. Securities are classified as HTM if the Company has the positive intent and ability to hold such securities to maturity.

The Company’s portfolio investments are governed by the Asset and Liability Policy (“A/L Policy”), which is approved by the Board of Directors of the Company. The A/L Policy sets forth exposure limits for selected investments, as a function of total assets, total securities and Tier I Capital. The A/L Policy further sets forth maximum maturity and duration limits for securities. The A/L Policy also further limits the concentration in a particular investment as a function of the total issue. The A/L Policy sets forth goals for each type of investment with respect to Return on Assets, Return on Equity and Return on Risk-Based Capital. It also sets forth limits for interest rate sensitivity for each type of investment.

Permitted investments include U.S. Government obligations, agency securities, municipal obligations, investment grade securities, commercial paper, corporate debt, money market mutual funds and guaranteed preferred beneficial interests in junior subordinated debentures. The Company’s Board has directed management to invest in securities with the objective of optimizing the yield on investments that appropriately balances the risk-based capital utilization and interest rate sensitivity. The A/L Policy requires that all securities be of investment grade at the time of purchase.

To protect against the accelerating prepayment speed of the securities portfolio due to lower market interest rate environment, the Company implemented a securities portfolio restructuring strategy during the three months ended June 30, 2003. Under this strategy, the Company began selling securities which had the highest exposure to prepayment and extension risk, and purchased shorter-dated securities with reduced prepayment and extension risk.

The securities portfolio (including available for sale and held to maturity) decreased by $51.3 million, or 3.2%, to $1.53 billion during the nine months ended September 30, 2003, down from $1.58 billion at December 31, 2002. The decrease in securities is a result of sales of $656.1 million, and principal repayments and securities calls of $605.6 million, mostly offset by purchases of $983.6 million and $194.2 million of FNMA securities received in the internal securitization of multifamily loans.

The portfolio provides liquidity for the Company’s operations. Such liquidity can either be realized through the sale of AFS securities or through borrowing. Securities are generally pledged as collateral for any such borrowings.

During the nine months ended September 30, 2003, the Company increased its held to maturity portfolio from $112.0 million at December 31, 2002 to $284.8 million. This increase of $172.8 million resulted from purchased securities during the period that were classified as held to maturity, a reflection of the Company’s intent and ability to hold these securities to maturity based upon our liquidity position and the size of our portfolio. The Company plans from time-to-time to continue to purchase securities for its held to maturity portfolio. However, for the foreseeable future, the Company expects that the preponderance of its securities portfolio will be classified as available for sale.

Page 23

The following table presents the Company’s securities portfolio on the dates indicated:


			At September 30, 2003				At December 31, 2002

			Amortized		Market		Amortized		Market
			Cost		Value		Cost		Value

					(Dollars in Thousands)
Investment securities available for sale:
	Trust Preferred Securities		$	13,189	$	11,757	$	62,313	$	58,176
	Federal Agency Notes			162,800		160,829		45,252		45,304
	Asset-backed Securities			18,541		18,530		5,826		5,739
	Municipals			90		90		360		360
	Corporate Bonds			11,906		11,672		—		—
	Foreign Debt Securities			—		—		8,017		8,014

		Total investment securities available for sale		206,526		202,878		121,768		117,593

Mortgage-backed securities available for sale:
	FNMA			597,332		601,008		577,731		590,373
	GNMA			117,646		118,042		280,263		286,153
	FHLMC			228,415		227,387		289,094		289,959
	Other			96,048		96,029		184,919		185,309

		Total mortgage-backed securities available for sale		1,039,441		1,042,466		1,332,007		1,351,794

Total investment and mortgage-backed securities available for sale			$	1,245,967	$	1,245,344	$	1,453,775	$	1,469,387

Investment securities held to maturity:
	Municipals		$	180,665	$	181,442	$	111,049	$	113,637

Mortgage-backed securities held to maturity:
	GNMA			103,158		103,256		—		—
	Other			930		930		945		945

		Total mortgage-backed held to maturity		104,088		104,186		945		945

	Total investment and mortgage-backed securities held to maturity		$	284,753	$	285,628	$	111,994	$	114,582

As of September 30, 2003, both the carrying value and the market value of the available for sale securities was $1.53 billion. The total net unrealized gain on these securities was $252,000. Included in net unrealized gains is $623,000 of net unrealized losses relating to securities that are available for sale on which, the net unrealized loss, net of tax, is included as a reduction to stockholders’ equity. The difference between the carrying value and market value of securities, which are held to maturity, aggregating a gain of $875,000, has not been recognized in the financial statements as of September 30, 2003. The unrealized net gains are the result of movements in market interest rates.

In conjunction with the Company’s review of the fair value of securities, for the nine months ended September 30, 2003, an “other than temporary impairment” charge of $787,000 was recorded for trust preferred securities contained in the available for sale portfolio due to the downgrading of the issuing bank holding companies from rating agencies.

Deposits. Deposits are the Bank’s primary source of funds to use in lending and investment activities. Deposit balances were $4.53 billion at September 30, 2003, which represented an increase of $525.0 million from $4.01 billion at December 31, 2002. Core deposit balances increased by $369.0 million, or 24.5% to $1.87 billion at September 30, 2003, compared with $1.50 billion at December 31, 2002. Core deposits include NOW, demand deposit, money market and savings accounts. The growth in core deposits resulted primarily from the Bank’s continued focus on developing new and expanding existing commercial and consumer relationships in the ethnic Chinese community, its retail niche market, and the FCB acquisition. At September 30, 2003, 58.7% of our deposits were time deposits; 22.6% were NOW, demand deposit and money market accounts; and 18.7% were savings accounts. By comparison, at December 31, 2002, 62.4% of deposits were time deposits; 20.3% were NOW, demand deposit and money market accounts; and 17.3% were savings accounts.

The Bank obtains deposits primarily from the communities it serves. No material portion of its deposits are from or are dependent on any one person or industry. At September 30, 2003, the 100 depositors with the largest aggregate deposit balances comprised less than 20% of the Bank’s total deposits. The Bank accepts deposits in excess of $100,000 from customers. Included in time deposits as of September 30, 2003, is $1.56 billion of deposits

Page 24

of $100,000 or greater. Such deposits comprise 34.4% of total deposits. The majority of the time deposits as of September 30, 2003, mature in one year or less.

The following table presents the balances and rates paid for categories of deposits at the dates indicated:


		At September 30, 2003					At December 31, 2002

				Weighted					Weighted
		Balance		Average Rate			Balance		Average Rate

				(Dollars in Thousands)
NOW, demand deposits and money market accounts		$	1,025,205		0.61	%	$	813,122		0.86	%
Savings accounts			848,219		0.80			691,318		1.10
Time deposits:
	Less than $100,000		1,100,271		1.95			1,109,633		2.36
	$100,000 or greater		1,558,136		2.10			1,392,740		2.53

	Total time deposits		2,658,407		2.04			2,502,373		2.45

Total deposits		$	4,531,831		1.48	%	$	4,006,813		1.90	%

Other Borrowings. The Bank maintains borrowing lines with numerous correspondent banks and brokers and with the Federal Home Loan Bank (“FHLB”) of San Francisco to supplement our supply of lendable funds. Such borrowings are generally secured with mortgage loans and/or securities with a market value at least equal to outstanding balances. In addition to loans and securities, advances from the FHLB of San Francisco are typically secured by a pledge of our stock in the FHLB of San Francisco. At September 30, 2003, the Bank had $319.6 million of advances outstanding compared to $353.4 million outstanding at December 31, 2002.

Included in the $319.6 million of FHLB advances as of September 30, 2003, were $48.1 million of short-term advances, which mature within one year. Of the $271.5 million in long-term advances, $29.0 million mature between 2005 and 2008. An additional $242.5 million mature between 2006 and 2008 with provisions that allow the FHLB of San Francisco, at their option, to terminate the advances at quarterly intervals at specified periods ranging from three to five years beyond the original advance dates. As of September 30, 2003, $226.6 million of these advances may be terminated at the option of the FHLB.

The following table sets forth certain information regarding short and long-term borrowings of the Bank at or for the dates indicated:


		At or For the Nine months Ended
		September 30,

		2003			2002

		(Dollars in Thousands)
Short-term borrowings:
FHLB of San Francisco advances:
	Average balance outstanding	$	54,565		$	10,656
	Maximum amount outstanding at any month end		125,936			42,500
	Balance outstanding at end of period		48,125			9,000
	Weighted average interest rate during the period		1.43	%		4.23	%
	Weighted average interest rate at end of period		1.38	%		4.63	%
	Weighted average remaining term to maturity at end of period (in years)		—			—
Long-term borrowings:
FHLB of San Francisco advances:
	Average balance outstanding	$	272,368		$	248,896
	Maximum amount outstanding at any month end		275,835			253,000
	Balance outstanding at end of period		271,523			249,000
	Weighted average interest rate during the period		5.06	%		5.40	%
	Weighted average interest rate at end of period		5.12	%		5.36	%
	Weighted average remaining term to maturity at end of period (in years)		4			5

Guaranteed Preferred Beneficial Interests in Junior Subordinated Debentures. The Company established special purpose trusts in 1998, 2001 and 2002 for the purpose of issuing Guaranteed Preferred Beneficial Interests in its Subordinated Debentures (“Capital Securities”). The trusts exist for the sole purpose of issuing the Capital Securities and investing the proceeds thereof in Junior Subordinated Debentures issued by the Company. The trusts are subsidiaries of the Company and are consolidated with the Company for reporting purposes. Payment of

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distributions out of the monies held by the trust and payments on liquidation of the trust, or the redemption of the Capital Securities, are guaranteed by the Company to the extent the trusts have funds available. The obligations of the Company under the guarantees and Junior Subordinated Debentures are subordinate and junior in right of payment to all indebtedness of the Company and will be structurally subordinated to all liabilities and obligations of the Company’s subsidiaries.

The Company had $136.0 million of Capital Securities outstanding at September 30, 2003, and December 31, 2002. The proceeds of the 2002 issuances were primarily used to fund the acquisition of BCC in October 2002.

Regulatory Capital. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines as calculated under regulatory accounting practices. As of September 30, 2003, the Bank met the “Well Capitalized” requirements under these guidelines. The total risk-based capital ratio of the Bank at September 30, 2003, was 12.14%, as compared with 11.52% at December 31, 2002. The ratio of Tier I Capital (as defined in the regulations) to average assets (as defined) of the Bank at September 30, 2003, was 7.66% as compared with 7.57% at December 31, 2002. The decrease in the Tier I Capital to average assets ratio in comparison to the increase in the total risk-based capital ratio is due to the impact the acquisition of BCC had on the average balance sheet at December 31, 2002. The Company is categorized as “Well Capitalized.” The Company’s total risk-based capital ratio is higher than the Bank’s due to the inclusion of the “Capital Securities” as capital in the risk-based capital calculation. Capital Securities are includable as capital up to 25% of Tier I Capital.

As discussed in Note 1 to the Consolidated Financial Statements, which this discussion accompanies, the Federal Reserve has issued interim guidance allowing the inclusion of trust preferred securities in Tier I capital regardless of the FIN 46 interpretation, although such a determination may change at a later date. The ultimate decision of the banking regulators is not known at this time. One potential impact of not including these trusts in our consolidated liabilities is that The Federal Reserve Bank may no longer allow the trust preferred securities to count towards Tier I capital of the Company. Even in such event, the Company would continue to be well capitalized. The Bank’s Tier I capital would be unaffected, since all trust preferred securities have been issued at the holding company level.

Contractual Obligation and Off-Balance Sheet Arrangements. The following table presents, as of September 30, 2003, the Company’s significant contractual obligations by payment date. The payment amounts represent those amounts contractually due to the recipient.


	Payments Due In

	2003		2004		2005		2006		2007		2008 and after

					(Dollars in Thousands)
Time deposits	$	866,477	$	1,706,486	$	65,740	$	14,820	$	3,241	$	1,643
Borrowings		44,125		4,000		6,000		15,797		6,000		243,726
Guaranteed preferred beneficial interests in junior subordinated debentures		—		—		—		—		—		136,000
Lease payment commitments		1,300		4,703		3,998		3,119		2,683		8,935

The following table presents significant commitments at September 30, 2003 (dollars in millions):


			September 30, 2003		December 31, 2002

Financial instruments whose contract amounts represent credit risk:
	Commitments to extend credit:
		Consumer (including residential mortgage)	$	104.2	$	86.5
		Commercial (excluding construction)		339.7		342.1
		Construction		255.1		188.6
		Letters of credit		32.1		49.1
	Commitments to purchase securities			—		17.3
Financial instruments whose notional or contract amounts exceed the amount of credit risk:
	Foreign exchange contracts receivable			2.4		10.2
	Foreign exchange contracts payable			2.4		10.2

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Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These letters of credit are usually secured by inventories or by deposits held at the Company. Foreign exchange contracts are contracts to purchase or sell currencies in the over-the-counter market. Such contracts can be either for immediate or forward delivery. The Bank purchases or sells foreign exchange contracts in order to hedge a balance sheet or off-balance sheet foreign exchange position. Additionally, the Bank purchases and sells foreign exchange contracts for customers, as long as the foreign exchange risk is fully hedged with an offsetting position.

Liquidity. As a financial institution, we must maintain sufficient levels of liquid assets at all times to meet our cash flow needs. The A/L Policy of the Company, as approved by the Board of Directors, requires the Company to maintain liquidity in an amount necessary to meet its business needs. The A/L Policy further specifies that certain measures of liquidity be met and reported periodically to the Board. The Board evaluates the adequacy of the Company’s available liquidity based upon current business trends. Further, the Company projects its liquidity resources and requirements twelve months forward and demonstrates to the Board how it will continue to meet the Board-specified liquidity requirements during that period.

The Company has not recently experienced, nor does it anticipate, any material changes in its liquidity resources or on its demands for such resources, which may result from existing commitments.

The Company has not recently experienced, nor does it anticipate experiencing, any material changes in its capital resources. The Company maintains total borrowing capacity of approximately $977.3 million, of which $659.2 million was available for use as of September 30, 2003.

The Company does not have any off-balance sheet financing arrangements as of September 30, 2003, and December 31, 2002.

Capital Resources. The Company has continuously declared quarterly dividends on common stock since 1999. During the nine months ended September 30, 2003, the Company paid aggregate dividends of $3.4 million. The payment of such dividends did not have a significant impact of the liquidity of the Company. As a result of the dividend payouts, the total capital of the Company was reduced by $3.7 million during the nine months ended September 30, 2003. The payment of dividends during the nine months ended 2003 had the effect of reducing the Tier I leverage capital ratio by 10 basis points and risk-based capital ratio by 9 basis points.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in the Company’s exposure to market risk since the information was disclosed in the Company’s Annual Report dated December 31, 2002, on file with the Securities and Exchange Commission (SEC File No. 0-24947).

ITEM 4. CONTROLS AND PROCEDURES

At the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s controls and procedures as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rule 13(a)-15(e). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures are effective. During the third quarter of 2003, there were no changes in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company’s wholly-owned subsidiary, United Commercial Bank, has been a party to litigation incidental to various aspects of its operations, in the ordinary course of business.

Management is not currently aware of any litigation that will have a material adverse impact on the Company’s consolidated financial condition, or the results of operations.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

The Company entered into a Rights Agreement dated as of January 28, 2003, with Mellon Investor Services LLC as Rights Agent (the “Rights Plan”). In connection with the Rights Plan, the Company’s Board of Directors authorized the distribution of one right (“Right”) for each share of the Company’s common stock, outstanding as of the close of business on January 31, 2003. The Rights were distributed on February 14, 2003, and expire on January 27, 2013. A complete copy of the Rights Plan was attached as an exhibit to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on January 29, 2003.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) List of Exhibits (filed herewith unless otherwise noted)


3.1		Amended and Restated Certificate of Incorporation of UCBH Holdings, Inc.*

3.2		Bylaws of UCBH Holdings, Inc.***

3.3		Certificate of Amendment to the Amended and Restated Certificate of Incorporation of UCBH Holdings, Inc.**

3.3		Certificate of Designation, Preferences and Rights of Series A Participating Preferred Stock ***

4.0		Form of Stock Certificate of UCBH Holdings, Inc.*

4.1		Indenture of UCBH Holdings, Inc., dated April 17, 1998, relating to Series B Junior Subordinated Debentures****

4.2		Form of Certificate of Series B Junior Subordinated Debenture****

4.4		Amended and Restated Declaration of Trust of UCBH Trust Co.****

4.5		Form of Series B Capital Security Certificate for UCBH Trust Co.****

4.6		Form of Series B Guarantee of the Company relating to the Series B Capital Securities****

4.7		Rights Agreement dated as of January 28, 2003*****

10.1		Employment Agreement between United Commercial Bank and Thomas S. Wu*

10.2		Employment Agreement between UCBH Holdings, Inc. and Thomas S. Wu*

10.3		Form of Termination and Change in Control Agreement between United Commercial Bank and certain executive officers*

10.4		Form of Termination and Change in Control Agreement between UCBH Holdings, Inc. and certain executive officers*

10.5		Amended UCBH Holdings, Inc. 1998 Stock Option Plan**

21.0		Subsidiaries of UCBH Holdings, Inc.***

31.1		Certificate pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended, signed and dated by Thomas S. Wu.

31.2		Certificate pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended, signed and dated by Jonathan H. Downing.

32		Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by Thomas S. Wu and Jonathan H. Downing.

(b) Reports on Form 8-K

The Company filed with the Securities and Exchange Commission a report on Form 8-K on July 18, 2003, covering information reported under Item 9 (Regulation FD Disclosure) but furnished pursuant to Item 12 (Results of Operation and Financial Condition) in accordance with SEC Release No. 33-8216.

*		Incorporated by reference to the exhibit of the same number from the Company’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on July 1, 1998 (SEC File No. 333-58325).

**		Incorporated by reference to the exhibit of the same number from the Company’s Form 10-Q for the quarter ended September 30, 2001, filed with the Securities and Exchange Commission on May 3, 2001 (SEC File No. 0-24947).

***		Incorporated by reference to the exhibit of the same number from the Company’s Form 10-K for the fiscal year ended December 31, 2002, filed with the Securities and Exchange Commission on February 25, 2003 (SEC File No. 0-24947).

****		Incorporated by reference to the exhibit of the same number from the Company’s Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 1, 1998 (SEC File No. 333-58325).

*****		Incorporated by reference to the exhibit of the same number from the Company’s current report on Form 8-K, filed with the Securities and Exchange Commission on January 29, 2003 (SEC File No. 0-24947).

Page 29

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	UCBH HOLDINGS, INC.

Date: November 14, 2003


	/s/ Thomas S. Wu
	Thomas S. Wu
	Chairman, President and
	Chief Executive Officer
	(principal executive officer)

Date: November 14, 2003


	/s/ Jonathan H. Downing
	Jonathan H. Downing
	Executive Vice President and
	Chief Financial Officer
	(principal financial officer)

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EXHIBIT INDEX


31.1		Certificate pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended, signed and dated by Thomas S. Wu.

31.2		Certificate pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended, signed and dated by Jonathan H. Downing.

32		Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by Thomas S. Wu and Jonathan H. Downing.

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	1.		The VIE was created before February 1, 2003

	2.		The public entity has not issued financial statements reporting that VIE in accordance with FIN 46, other than in the disclosures.

⁽¹⁾		Effective April 8, 2003, the Company completed a two-for-one stock split. Accordingly, the financial statements for the three and nine months ended September 30, 2002 presented have been restated to reflect the effect of the stock split.

4.		Comprehensive Income

	1.		Changes in the underlying asset, liability or equity security of the guaranteed party or

	2.		A third party’s failure to perform under an obligating guarantee (performance guarantee).

			Available for Sale Securities: The fair values of most securities classified as available for sale are based on quoted market prices. If quoted market prices are not available, fair values are extrapolated from the quoted prices of similar instruments.

			Goodwill and Other Intangible Assets: As discussed in Note 5 to the Consolidated Financial Statements, which this discussion accompanies, the Company must assess goodwill and other intangible assets each year for impairment. This assessment involves estimating cash flows for future periods. If the future cash flows are materially less than the estimates, the Company would be required to take a charge against earnings to write down the asset to the lower fair value.

⁽¹⁾		Nonaccrual loans are included in the table for computation purposes, but the foregone interest on such loans is excluded.
⁽²⁾		Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
⁽³⁾		Net interest margin represents net interest income divided by average interest-earning assets.
⁽⁴⁾		Calculated on a nontax equivalent basis.

	•		We continued to focus on commercial loan originations during 2003. Total commercial loan originations were $1.28 billion during the nine months ended September 30, 2003, compared with originations of $932.1 million for the corresponding quarter of 2002. The concentration of commercial lending was 88.8% of total loans compared to 89.1% in the corresponding period of 2002. Our allowance for loan loss methodology attributes higher loss factors to commercial loans, reflecting the higher inherent risk in that portfolio.

	•		Criticized loans, which are defined as those we classify as risk-graded Special Mention, Substandard, Doubtful, or Loss, were approximately 1.13% of total loans at September 30, 2003, compared with criticized loans of approximately 0.77% of total loans at September 30, 2002.

	•		Nonaccrual loans increased from $3.2 million at September 30, 2002, to $5.8 million at September 30, 2003. The increase reflects two construction loans on one project that were over 90 days past due.

	•		Net charge-offs of $1.4 million for the nine months ended September 30, 2003, decreased as compared to net charge-offs of $2.1 million for the corresponding period of 2002. The charge-offs in the nine months ended September 30, 2003 and 2002 related primarily to commercial business lending.